How Long Will it take to RETIRE on SHARES

I don't expect property to have much growth on average, but if you can buy a property which costs you virtually nothing then there may not be much downside - other than tying up the 20% deposit which could have been invested elsewhere perhaps?

 

@Snowball thanks for taking the time to reply, really appreciate it.
I will look into if we can trim costs down any more without completely sacrificing we need to enjoy life and pay our mortgage.
Changing the numbers from 7% to 3% for property or 7% total for shares considerably changes the results. I guess we just have to pick a sensible way forward, hope for some luck and know that even without it, we will get where we want to sooner or later.
I see what you're saying about the start up costs to property getting in the way when you're looking at such a short period of time, that makes sense thanks.
I'm curious to know if now that you're living off your portfolio's dividends is it still growing in value? I didn't completely understand that part of the calculator, based on 8% total return we are earning our expenses in 6 years but we cannot retire for another 6 years. Is that the point when the dividends will pay for our expenses on their own?

 

If you’re living off dividends, yes your portfolio will still grow over time, just not as much obviously because you’re no longer reinvesting those dividends.

I’m not sure I understand your second question. The inputs of the calculator are based on you safely living on 4% of the portfolio in retirement. So it works on you needing 25 times expenses to retire. Hope that makes sense.

 

Thanks yes that clears it up!
Well done again to you for what you have achieved and a great blog that helps people realise there are ways out of the rat race.

 

Thanks heaps!

Been a long road, made mistakes and still learning, but dedicated saving for many years was the critical element.

 

Is it going to take longer now? Do you need to tweak it?

 

S&P500 is 47% higher than where it was 5 years ago and 9% below its all time high (excluding dividends add another 2% pa)

Definitely better off than residential property investor over past 5 years.



Cheers,
Oracle.

 

Excellent
Growth Depends what you purchased and where with regards property market

 

Shares vs property is all about leveraging. 1 for 1 shares always outperform property in a standard buy and hold strategy but if you renovate and add value property can be a real winner. In our case however we may as well work an extra day in our job than spend time renovating as our hourly rate is quite high. If you are a low income earner property and renovating may be the wiser choice.

We have been ETFs all the way and should comfortably retire by age 40 with passive income of around 12k a month after tax. The only reason we are looking at getting one property is for diversification plus in the unlikely event we ever want a forever home we would have hedged the property market and can easily sell the investment for a PPOR.

 

Thats a gross generalisation. And dont ignore the merits of tax free property growth v taxed gains for shares. I only ever find those who dont own property say this. A self fulfilling statement. I can name many people I met in my work who went 100% shares and didnt buy property. They all bought shares that boomed and in the end didnt fare well incl Pasmino, HIH, MYOB, tech crash and just bad investments (Compass Airlines etc) , etc etc. Again thats a generalisation but I know there are real people who regretted their choice as "all-in" on shares. Unlike share markets you generally wont wake up to learn property fell 35% overnight. Like several market events in my lifetime. Last being the GFC.

eg Prior to the GFC, the ASX 200 hit a high in November 2007 of 6851.5 before tumbling 54.5% to a low of 3120.8 in March 2009. It then took the index until July last year (2019) to surpass this pre-GFC high

Its easier to leverage most property as some shares arent well accepted as security. But those with property equity can also use that to leverage shares at 80%+ LVR. Many banks wont lend on shares & not at 80%

 

Yep, PPOR CGT free status is a free kick I wouldn't pass up personally. Beyond that however, no residential property for me. As you state, the generalisation isn't great, such losses would easily be mitigated if investors realised they aren't as clever as they imagine and held a diversified portfolio.

Unquoted assets obviously don't show much volatility, and the quote provided is very misleading....that is price index....take a look at the accumulation index which is the real story. Leverage also misleading, listed companies in aggregate are carrying debt on the balance sheet.

 

I have to respectfully disagree. The only benefit with property is the PPOR and you cannot realise the gains unless you then sell and purchase again (in the same market so those relative gains are eaten up when you buy a new PPOR). Stock also have CGT discounts on income earnt which are quite significant.

In your instance you spoke of individual stocks. I’m talking about index investing across broad markets. For instance property and the broad Australian stock market have performed at almost the same level (https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcQznJAkVVSofpXysPub6TYYmD3Gj7_hQTz9Bw&usqp=CAU) see link... however, this is just the Australian market. If you diversified and invested around 60% in to US indices you would have significantly outperformed housing. Secondly, your assets are a lot more liquid.

Now you mentioned that stock can “drop 40%” which for any reasonable investor means nothing. Because unless you’re drawing down funds you’ll have a cash and bond buffer to weather out any bear markets.. the link you posted also ignores dividends and is just looking at the equity price. Australian stocks have one of the highest dividends in the world which isn’t in your equation.

I’ll agree if you in the past invested in either it didn’t really matter at the end of the day, however in this low interest rate environment all indicators suggest the market will outperform housing. Fundamentally housing prices are capped due to incomes and interest rates. They cannot go past this cap as no one will be able to afford mortgages or rents... equities such as stock have a limitless ceiling because no one needs to live in a stock and are largely capped on only productivity and credit.

And because you added anecdotes I also know family that have mid 7 figures held in stock and bonds, so they have done very well without property. And their passive income is quite significant, even if the market wipes out 50%. This will be our strategy too, but we are thinking of also holding one investment property for diversification sake.

 

I forgot to add. That graph doesn’t also reflect the significant costs associated with holding property vs stocks which would deminish the real return.

I will agree with your last point as I mentioned in my earlier post - you can leverage with property much easier (same can be done with stocks too FYI). But that comes with risk because if a crash did happen you’d be holding the banks debt in your hand. (Doesn’t matter if you’re holding, but you’re then kind of FORCED to hold).

 

From a cashflow perspective, yes ETF's and LIC's have performed better than property in recent history but the share price performance has been underwhelming.

 

That doesn’t make much sense when the ETFs and LICS hold the same underlying equities you’re talking about. People should only be buying ETFs anyways, no one can outperform the broad market.

 

Buy some overseas shares to mix things up. Get some Amazon, Google, Microsoft, Apple, etc. by either buying IVV, VGS or for the bold NDQ.

IVV and NDQ have returned double digit returns over past few years.

Cheers,
Oracle.

 

Thing is you can't really "invest in residential property". You can buy one or a few houses, that's it. Zero diversification. It's the equivalent of stock picking.

On the other hand, I have access to a globally diversified share portfolio... and it can cost me <0.20% per year.

Both have pros and cons, but I would argue property is more risky due to the lack of diversification and costs involved.

 

If you invest in property and in States that are rising you can do very well, dont stick to one market. There have been at least 4-5 property booms since 2013 in Australia

Also if you can develop property another avenue to make good profits and also you can sell a couple of the sites to turn negative cash flow into positive cash flow properties


I think it makes sense to have a spread of both.

 

Er, yeah, right. It's an opinion. I suppose.

 

So for everyone here ...... would this work today in current climate?


How I got from just a PPOR to multi millionaire retiree in 5 years using only OPM.